Not Your Keys Not Your Coins (NYKNYC) Explained

The ability to self-custody Bitcoin is one of the digital assets' most powerful features, enabling users to hold their Bitcoin directly without relying on a third party. This grants access to an undebasable savings account and uncensorable transactions. Given that self-custody has emerged as a fundamental principle of Bitcoin, users naturally came up with the catchy and extremely accurate phrase “Not Your Keys, Not Your Coins.”

This article dives into the meaning behind this statement and explores the critical relationship between private keys and Bitcoin ownership. Understanding this concept is crucial for anyone invested in Bitcoin, as it underscores the importance of self-custody and the risks associated with third-party custodianship.

When you’re ready to take full control of your Bitcoin and ensure its security, consider Theya’s multisig vault. It offers an advanced solution for safeguarding your private keys and maintaining autonomous control over your digital assets.

The Meaning Behind "Not Your Keys, Not Your Coins"

“Not Your Keys, Not Your Coins” (NYKNYC) has become the rallying cry of self-custody advocates in the Bitcoin space. The phrase succinctly captures one of the most important relationships in Bitcoin: ownership over Bitcoin is directly tied to ownership over private keys. In other words, whoever controls the private keys of a Bitcoin wallet, controls the Bitcoin in that wallet.

While many wallets offer self-custodial functionality, where your private keys are given to you when you open the wallet, there are an equal number of fully custodial wallets. In custodial wallets, the wallet provider, service, or platform holds your private keys for you and thus has ultimate authority over your Bitcoin. Hence the phrase, NYKNYC. To ensure full control over your Bitcoin you must take it into self-custody and hold your private keys.

A crucial aspect of self-custody is a seed phrase. A seed phrase is a human-readable form of your wallet’s private keys that encapsulates all the data necessary to replicate or recover them. Seed phrases are typically 12 to 24 words that allow you to recover your wallet and all associated funds if it is lost, stolen, or otherwise inaccessible. In this way, the seed phrase serves as a backup of your private keys and, by extension, your Bitcoin.

Therefore, while the phrase NYKNYC refers to holding your own private keys, it more accurately means holding your own seed phrase since it is the physical representation of your private keys. This underscores the importance of safeguarding your seed phrase to ensure security and ownership over your Bitcoin. If someone else gets a hold of your seed phrase or you lose your seed phrase, your Bitcoin could be lost permanently.

The Risks of Not Holding Your Own Keys

There are many risks associated with not holding your own private keys and instead relying on a third party to custody your Bitcoin. Whether you are using a centralized exchange, a financial institution, or a custodial wallet, various risks emerge in all of these cases that can put your Bitcoin holdings at risk:

• Security Risk: Custodial exchanges and wallets are prime targets for hackers due to the large amounts of Bitcoin they store. Security breaches can lead to significant losses for users, as seen in high-profile hacks such as the Mt. Gox incident, where users lost hundreds of thousands of bitcoins. When a third party holds your keys, you are at their mercy for security measures, which may not always be foolproof.
• Counterparty Risk: Trusting a third party with your Bitcoin introduces counterparty risk—the risk that the custodian may fail or act in bad faith. Financial institutions and exchanges can become insolvent, engage in fraudulent activities, or mismanage funds. If the custodian goes bankrupt, your Bitcoin could be tied up in lengthy legal proceedings or lost entirely.
• Regulatory Risk: Governments and regulatory bodies can impose restrictions on custodial services, leading to frozen accounts or asset seizures. Relying on a third party subjects your Bitcoin to regulatory actions that could limit access to your funds or even result in their confiscation. Changes in regulations can also impact the operational viability of custodial services, adding another layer of uncertainty.
• Moral Hazard: When users rely on third-party custodians to secure their Bitcoin, these entities might not have the same incentive to protect individual funds as users would themselves, potentially leading to less stringent security measures and conflicts of interest where custodians prioritize their own profits or compliance over users security and access to their funds.

Overcoming the Challenges of Self-Custody

While self-custody is the most desirable setup for your Bitcoin holdings, it requires a small learning curve, employing best practices, and mindfulness. First and foremost, it is essential to securely manage your private keys. When generating your seed phrase upon opening a wallet, ensure you store it securely in multiple, safe locations to recover your Bitcoin in the case of loss, theft, or damage to your wallet. Consider opting for a “cold wallet” where your private keys are kept offline, rather than a “hot wallet” where your private keys are online. A multisignature setup may also be of interest, as it adds an additional layer of security by requiring multiple private keys to access your Bitcoin, thereby removing a single point of failure.

It is also crucial to avoid common pitfalls and scams. Scammers or phishing attempts may try to steal your private keys or seed phrases. Therefore, always verify the authenticity of websites and communications, and take extra caution with anything involving your Bitcoin holdings. The critical rule is to never share your seed phrase with anyone, as this could lead to the permanent loss of your Bitcoin. We encourage readers to stay informed about the best security practices and potential threats in the digital asset space.

Finally, there are some essential steps to take before moving to self-custody for the first time. Anyone interested in taking full custody of their Bitcoin must first gain a thorough understanding of the protocol, how transactions work, the role of cryptographic keys, and the significance of self-custody. Learning about different self-custody solutions, such as hardware wallets, software wallets, and multisig wallets is essential to making an informed decision that is best for you. When starting out, it is advisable to begin with a small amount of Bitcoin and practice using self-custody tools and transactions to build proficiency and confidence before moving to larger amounts.

Types of Bitcoin Wallets

Choosing the right digital wallet is crucial for managing your Bitcoin securely. Wallets can be broadly categorized into cold wallets (offline) or hot wallets (online) as well as self-custodial wallets (you hold your keys) or custodial wallets (they hold your keys). Here’s a brief overview to the different kinds of Bitcoin wallets to help understand your options:

• Online Wallets: These hot wallets are typically provided by exchanges and browser-based services. They can be custodial or non-custodial depending on the wallet. While convenient, they are not recommended for self-custody of large amounts of Bitcoin due to the risks associated with third-party control as well as the vulnerabilities of the wallet always being online.
• Paper Wallets: These are cold wallets and are self-custodial. A paper wallet involves printing your private keys and Bitcoin addresses on a piece of paper. While this method can serve as a simple backup, it’s not recommended for regular use due to the risk of physical damage or loss. For better security, consider backing up paper wallets with a more durable medium like steel, or opting for more practical cold wallet solutions such as hardware devices.
• Mobile Wallets: These are hot wallets and can be either custodial or self-custodial, depending on the app. They are beginner-friendly and cost-effective options for managing Bitcoin on your smartphone. They offer convenience and accessibility but may lack the advanced security features of other wallet types and are not recommended for large amounts of Bitcoin due to their online connectivity.
• Hardware Wallets: These are cold wallets and are self-custodial. Ideal for intermediate users, hardware wallets provide a high level of security by keeping your private keys offline. They are physical devices that generate your keys offline, making them less vulnerable to online threats and more ideal for larger amounts of Bitcoin
• Desktop Wallets: These wallets can be either hot or cold, depending on whether they are connected to the internet, and are typically self-custodial. Suitable for intermediate to advanced users, desktop wallets offer comprehensive management of Bitcoin, providing a good balance between security and usability.
• Multisig Wallets: These can be cold or hot wallets and are self-custodial. For those seeking advanced security, multisig wallets require multiple private keys to authorize transactions. This setup significantly reduces the risk of single points of failure making it ideal for large sums of Bitcoin. Theya offers an easy-to-use multisig solution, making advanced security accessible to all users.

Why Choose Multisig For Self-Custody?

For a variety of reasons, a multisignature (multisig) wallet is the best option available for beginners and advanced users alike. Multisig wallets employ multiple private keys to authorize transactions, making moving your Bitcoin more cumbersome. However, it offers an additional layer of security by shielding your funds from a single point of failure such as theft, damage, or loss of your private keys. Even if one key is compromised the Bitcoin remains secure because the other keys are needed to move the Bitcoin. Similarly, if one key is lost, your Bitcoin remains uncompromised since the other keys can be used to recover and access the wallet.

Theya's Multisig Vault

Theya’s multisig vault provides an advanced yet user-friendly solution for securing your Bitcoin. With a streamlined user interface, Theya makes it easy for anyone to set up a multisig wallet. We also support modular multisig, enabling you to incorporate your favorite hardware wallet into the multisig setup. Other key features include offline mode, easy-to-follow tutorials, singlesignature wallets, and more. Theya’s multisig vault also offers enhanced protection through its unique recovery options. In the case that one of your keys is compromised in any way, Theya provides a straightforward recovery process, ensuring you always retain control over your Bitcoin.

Conclusion

The importance of “Not Your Keys, Not Your Coins” cannot be overstated. Self-custody is essential for ensuring true ownership and security of your Bitcoin. By understanding the various Bitcoin wallet options and best practices for self-custody, you can protect your digital assets from risks associated with third-party custodianship of your private keys. 

Multisig wallets in particular offer an additional layer of security that not only addresses the risks of outsourcing the control of your private keys to a third-party, but also the vulnerabilities faced by singlesignature wallets. You can learn more about self-custody and the benefits of multisig by exploring our blog. When you’re ready, you can download Theya’s multisig vault to experience unparalleled security and peace of mind for your Bitcoin.